Is there a policyholder protection scheme in your jurisdiction?
Insurance & Reinsurance (3rd edition)
There is no specific policyholder protection scheme in Brazil. The policyholder represents a group of insured parties and has the duty to defend them vis à vis the insurer. In legally obligatory insurance and in some specific fields such as D&O and surety, for example, the policyholder is equated to insured persons for the purpose of contracting and maintaining insurance. In voluntary insurance, the policyholder is the insured's agent. Moreover, the insurer may assert against the insured any defense that it has against the policyholder. The non-payment to the insurer of the premiums received from the insured, within the due periods, subjects the policyholder to a significant financial penalty and possible criminal liability. Under Brazilian Law, the term policyholder might also cover a person or a company that contracts insurance in favor of another person or company.
To protect the interests of the policyholder, an insurer shall timely reply to the claims of the insured, perform its obligation of explicitly interpretation and satisfy its obligation of promissory estoppel.
The insurer shall, after receiving a claim for indemnity or payment of the insurance benefits from the insured or the beneficiary, determine the matter within 30 days and pay the indemnity within 10 days after an agreement is reached with the insured or the beneficiary on such indemnity or payment.
For those clauses that exempt the insurer from liability in the insurance contract, the insurer shall make sufficient warning to the policy holder of those clauses, and expressly explain the contents of those clauses to the policy holder in writing or orally.
If a policy holder fails to perform his obligation of making an honest disclosure out of gross negligence, the insurer generally will bear no obligation for indemnification or payment but may return the premiums paid. However, under the principle of promissory estoppel, where an insurer entered the contract knowing that the policy holder fails to perform his obligation of making an honest disclosure, the insurer shall not rescind the contract and shall bear the obligation for indemnification or payment of insurance benefits.
The Danish Guarantee Fund for Non-life Insurance Companies provides cover for policyholders in case of a non-life insurance company’s bankruptcy. In brief, the Guarantee Fund will in case of bankruptcy step in and provide cover and reimburse prepaid premium.
The guarantee scheme generally applies to private insurances (consumer insurances) taken out with insurers that have been granted license from the Danish FSA to carry out insurance business in Denmark, or with foreign insurers which have passported their license through their home country regulator.
In addition to the guarantee scheme, the minimum capital requirements set out in the EU Solvency II Directive (reply to question 10), and the fit and proper requirements of the senior managers (reply to question 13), lead to some protection of the policyholders.
Currently not. According to ISA 55, life insurance contracts for which particular “restricted assets” have been established (these are particularly life insurance contracts that also provide endowment benefits) are not terminated in the case of the bankruptcy of the insurance company. Instead FINMA may temporarily restrict cancellation rights for such policies. This has the aim of giving FINMA the possibility of finding another insurance company that is prepared to assume the portfolio of the bankrupt insurance company and to duly fulfil the obligations under the respective insurance contracts. If FINMA finds such other insurance company it can request that a portfolio transfer to such company takes place.
Proposed amendments by Pre-Draft ISA (not exhaustive):
Pre-Draft ISA 52a et seq. set out new provisions on the restructuring of insurance companies. These include the possibility to transfer an insurance portfolio (or a part of it) to another legal entity, which shall be in the position to manage the portfolio through a well-regulated run-off.
Policyholder protection is available as a consequence of dissolution or liquidation of an insurer.
In the event of a transfer of insurance contracts, the IBA provides for procedural requirements to protect policyholders through a limited but fixed public notice period with the opportunity to raise questions and/or objections to the transfer. In the event that ten percent (10%) or more of the policyholders object, then the transfer may not be made to another insurer.
Under the Korean Depositor Protection Act, the insured financial services companies, including insurers, participate and pay premiums to a guarantee fund managed by the Korea Deposit Insurance Corporation. In this regard, there is a policyholder protection pursuant to the foregoing where policyholders may seek claim proceeds and return premiums of up to KRW 50,000,000 for all claims made to a single life insurer or non-life insurer that is in insolvency proceedings including those related to automobile insurance.
Yes. Even though insurers are free to fix the content of their policies, in matters of personal, compulsory and mass insurance, the policies must be subject to the minimum conditions and/or clauses approved by the SBS. This Entity includes, within its attributions, the faculty to prohibit the use of policies that avoid the law or the minimum conditions approved. It also has the authority to order the inclusion of clauses or conditions in policies that promote the strengthening of the technical and economic bases of insurance and the protection of the insured. In general terms, the ICA has a protective regulation for the insured and also provides that the relevant insurance information (coverage, exclusions, how to file a claim, among other provisions) is always at their disposal in a clear and transparent manner.
Policyholder protection schemes have been put in place, so as to protect policyholders in the event that an insurance company becomes insolvent or loses its license (thereby causing it to be wound-up). The schemes are effectively constituted of (i) the possible transfers of the insolvent insurance company’s portfolio to another insurer and/or (ii) the intervention of various financial guarantee funds (though it should be borne in mind that not all types of insurance will necessarily be able to benefit from both these schemes).
The portfolio transfer scheme protects life insurance policyholders and is not available for non-life insurance contracts (one appreciates the rationale for providing such a scheme specifically for life insurance policies, given the extended periods of time during which such policies are usually kept). Whether the transfer scheme is finally conducted is left at the discretion of the ACPR, which can either allow it to go ahead or refuse and set a date for the termination of the impacted contracts.
Guarantee funds may also intervene, in certain circumstances, so as to provide policyholders with compensation. There is, for instance, a guarantee fund that specifically protects life insurance policyholders (“fonds de garantie contre la défaillance des sociétés d’assurances de personnes”), as well as a guarantee fund that protects policyholders that have taken out mandatory insurance policies (“fonds de garantie des assurances obligatoires de dommage”). It should be noted, in relation to the latter, that if the said guarantee fund has had to provide compensation for bodily injury or property damage, owing to the insolvency of the policyholder’s insurer, then it would be subrogated into the rights of the victim, much as would have been the case for the original insurer.
One of the primary aims of the Insurance Contract Act (Versicherungsvertragsgesetz, VVG) is to protect the policyholder who is, in general, considered to be the weaker party, even if the policyholder is not a consumer. This has been codified by the newly introduced section 1a VVG, which states that the insurer must always act honestly, honestly and professionally in the best interests of policyholders in its sales activities. These duties also apply to intermediaries (cf. Section 59 VVG) To achieve policyholder protection, the Insurance Contract Act contains various provisions which cannot be waived to the detriment of the policyholder. Exceptions are made with regard to large risks (Section 210 para. 2 VVG) and open policies (cf. Section 53 et seq. VVG) where the legislator assumes that the policyholder has sufficient experience with insurance contracts to defend his or her own interests.
The Contract Law is a pro consumer law. The courts adopted the spirit of the law and the tendency of the courts is to prefer the Insured over the Insurer’s interests.
In case of a liquidation of the Insurance Company, there are specific regulations ensuring the priority of Policyholders over any other creditors.
Where a general insurer is under judicial management and is believed to be insolvent, the Minister may declare a Financial Claims Scheme over the general insurer. This entitles eligible policyholders with claims connected to certain policies to be paid before they otherwise would during the winding up of the general insurer. The scheme does not apply to life insurers or private health insurers. Any policyholders of state based compulsory insurance lines are governed by separate schemes created under state legislation.
The scheme offers continuous cover to policyholders for 28 days after the scheme is declared and permits claims to be made within 12 months. The scheme only covers general insurance contracts and does not extend to policyholders with an operative revenue or gross assets above AUD 200 million or with more than 500 employees. Where claims are below AUD 5,000, policyholders are only entitled to be paid an amount equal to what the insurer's liability would have been. Where policyholders are over that threshold, they will only be paid if APRA is also satisfied that the policyholder meets any conditions in the Insurance Regulations 2002 (Cth).
The scheme is managed by the Commonwealth and funded through a levy on the financial sector.
Yes there is The Guarantee Fund for Victims of the Road Accident, operational since 12 June 1971, and administered, under the supervision of the Ministry of Economic Development, by Consap and run upon delegated authority by insurers appointed every three years by IVASS. The Guarantee Fund provides coverage in three cases of motor accident that otherwise would have not been insured: (i) for accidents caused by unidentified vehicles or boats, but for personal injury only; (ii) vehicles or vessels uninsured for personal injury and for material damage with a deductible, for the latter, of Euro 500,00, and (iii) vehicles or boats insured with companies placed in compulsory administrative liquidation.
In case of professional liability of the brokers, the policyholder can expect to receive compensation from the Liability Insurer of the intermediary. The Broker Professional Indemnity Insurance is mandatory in accordance to the D.P.R. 137/2012 of 7 August 2012 and it is one of the conditions to be meet by natural persons or companies to be registered in the RUI register maintained by IVASS.
The following policyholder protections are available:
(1) Procedures allowing to change insurance policy terms by voluntary agreement between an insurance company and a policyholder in cases where it would be difficult for such insurance company to continue its insurance business.
(2) Procedures allowing the Prime Minster to order
- an insurance company to take necessary measures, such as suspending its business or consulting on the transfer of insurance contracts, or
- the management of an insurance company’s business and property by an insurance administrator in cases where it would be difficult for such insurance company to continue its insurance business.
(3) Procedures allowing the Prime Minister to designate another insurance company and recommend that such insurance company accept consultations on the transfer, etc. of insurance contracts in the event of a bankruptcy of an insurance company.
(4) Procedures allowing the Life Insurance Policyholders Protection Corporation of Japan to provide financial assistance for the transfer, etc. of insurance contracts or underwrites insurance contracts for an insurance company in the event of a bankruptcy of such insurance company.
In Poland there is the Insurance Guarantee Fund ("UFG") that protects the interests of insured persons. However, this protection refers mainly to compulsory third party liability insurance for owners of motor vehicles and farmers in Poland. The basic task of the UFG is to pay compensation and benefits to victims of accidents caused by uninsured vehicle owners and uninsured farmers. It also satisfies claims of injured parties, in the case where the perpetrator of a traffic accident fled the scene of the incident and is unknown.
The UFG pays compensation also when an insurer declares bankruptcy or is subject to compulsory liquidation. Such compensation is available with respect to compulsory third party liability insurance. It covers the full amount of the claim in case of drivers and farmers. In the case of farmers' buildings, it covers the claim up-to a contractually agreed sum.
Moreover, in the case of bankruptcy or compulsory liquidation, the UFG guarantee also covers life insurance and compulsory insurance other than listed above. The maximum payment to an entitled person may not exceed 50% of the claim (up to EUR 30,000).
With the modification that Law 20,667 introduces to the regulation of insurance contracts, replacing Articles 512 to 600 of the Code of Commerce, the Chilean legislator establishes the distinction between insurance contracts on large risks and insurance contracts with consumers. Specifically, article 542 of the aforementioned code contemplates a regulatory imperative regime - which partly follows the criteria of European legislation, especially Spanish legislation - establishing a rigid system of protection in favour of consumers. This rule functions as a mechanism for controlling the minimum content -by inclusion- of insurance contracts, limiting the freedom of insurers to draw up general conditions.
To the rules of the Commerce Code are added the rules of Law 19,496 on the Protection of the Rights of Consumers, which are applied in silence of the aforementioned Code. The rules on control of content by exclusion (unfair terms) and rules on transparency of contracts stand out.
All of the above is reinforced by the pre-contractual information requirements that articles 514 and 529 of the Commercial Code and article 17B of Law 19,496 impose on insurers in the direct marketing of insurance, on the one hand, and, on the other, the information duties that article 57 of DFL 251 and DS 1055 impose on intermediaries.
Finally, it is important to highlight the supervisory function of the CMF in fulfilling its objective of protecting consumers and market conduct.
The CONDUSEF is the governmental body created to protect the interests and the rights of the consumers of financial services. It is regulated by the Law for the Protection and Defence of Financial Services Users (“Condusef Law”) (1999). Since the protection of the consumers is considered to be a matter of public concern, the rights set forth in the CONDUSEF Law may not be waived.
The main purposes of the CONDUSEF are: the promotion, assistance, protection, and defence of the rights and interests of users of financial services against financial institutions, dispute resolution in an impartial manner, and the promotion of equity in the relationship between consumers and providers of financial services. The CONDUSEF also operates and maintains various public registries, that may be freely accessed by the public, including, a registry of financial institution, a registry of standard-form insurance agreements, and a registry of sanctions imposed to financial institutions.
Claims may be submitted to the insurance company within five years, regarding life insurance coverage, and two years, in all other cases, counting from the date in which the occurrence that gave rise to the claim took place. Upon filing a claim, the statute of limitations is suspended.
If the insurance company denies coverage, the policyholder, insured or beneficiary may file a claim before CONDUSEF prior to filing the claim with competent courts. Claims with CONDUSEF should be submitted within one year from the date of occurrence of the event. If no claim is submitted to CONDUSEF, or after submitting a claim with CONDUSEF that did not result in any settlement, the insured has the right to file a claim before competent courts.
Upon the filing of a claim, CONDUSEF shall issue a notice to the insurance company within five business days following the receipt thereof, attaching to the notice, and a copy of the claim submitted by the user, and copying the claimant on the notice. If the insurance company does not respond or fails to attend the hearing on the day and hour set forth in the notice, CONSUDEF may impose a fine to the insurance company. The insurance company shall deliver a response prior to or at the time of the conciliatory hearing, answering each of the items cited by the insured. Such response must be signed by a legal representative of the insurance company.
The failure to present the response from the insurance company will not cause the suspension or adjournment of the conciliatory hearing, and it will be deemed as concluded, considering the facts claimed by the insured as true, regardless of the penalties that may be imposed to the insurance company.
In addition to the protection of users of financial services through the CONDUSEF, the LISF and its regulation require all insurance companies to form a special insurance fund (fondos especiales de seguros) for life, non-life and annuities, respectively, that may be used in case they need financial support to comply with their obligations with contracting parties, insureds, and beneficiaries under insurance policies.
Finally, the LISF and Circular provides also disclosure and transparency obligations that have as a purpose the protection of the insured, such as the obligation to register standard-form insurance products, the obligation to provide complete documentation to the policyholder, the obligation to disclose commission paid to intermediaries, among others.
The Financial Services Compensation Scheme (“FSCS”) protects policyholders (including consumers and small businesses) should an insurer become insolvent. Compensation is only available for financial loss. In the event of insolvency 100% of a claim is protected in respect of a compulsory insurance policy, professional indemnity insurance or life and long-term sickness policies. In all other cases, 90% of the claim is protected.
Currently, there is no Policy Protection Scheme in the UAE that protects policyholders in the event of a failure of an insurer. Nevertheless, prudential regulations are focused on minimising risk. As discussed above, the IA published the Financial Regulations for Insurance Companies and Takaful Insurance Companies (Board of Directors' Decision Number 25 of 2014 and the Board of Directors' Decision Number 26 of 2014 for Takaful, respectively). These regulations impose broad obligations on insurers to ensure that all assets, in particular those covering Minimum Capital Requirements, Minimum Guarantee Funds and the Solvency Capital Requirements, be invested in such a manner to ensure the security, quality, liquidity and profitability of the insurer's portfolio. The underlying principle of these regulations is to ensure that an insurer is able to meet its exposures within the UAE at all times, thereby protecting the policyholder.
Belgium has no general policyholder protection scheme in place. Instead, specific categories of policyholders are protected by special schemes. The following categories of insurance are protected:
• Savings insurance products with capital protection (class 21 life insurance): savings up to €100,000 are covered by the guarantee fund in the event of insolvency of the insurance undertaking.
• Workplace accident and sickness insurance: Fedris, a federal agency, set up in 2017 as a merger between the Fund for Workplace Accidents and the Fund for Workplace Sickness compensates employees or other beneficiaries (e.g. relatives) in the event of:
- Insolvency of the insurance undertaking;
- breach of the employer’s duty to take out compulsory workplace accident insurance;
- Specific situations related to social security (e.g. workplace sickness, combined workplace accident and pension, and workplace accident due to terrorism or war).
• Motor insurance: the motor guarantee fund will assume responsibility for claims if:
- The person causing the damage is unknown;
- The person causing the damage is known, but not insured;
- The person causing the damage is known, but the vehicle is stolen;
- Insolvency of the insurance undertaking;
- The person causing the damage is exempt from the duty to take out motor insurance.
Every U.S. state has a guaranty fund that protects policyholders from the insolvency of life and health insurance companies, as well as property and casualty insurers. These guaranty funds are overseen and run by each state’s regulator, and are usually operated by a not-for-profit association. Membership in a state’s guaranty fund association is often compulsory for insurers licensed to do business in that state, and member insurers are required to make periodic payments into the guaranty fund.
The claim payouts to insureds by guaranty funds are often subject to limits under the state insurance law in order to ensure that the fund remains solvent.
Policyholder protection is ensured by:
(a) a guarantee fund maintained by the relevant insurance company, the form and amount of which is set by OJK; and
(b) OJK’s direct and indirect supervision of consumer protection procedures and policies, and their respective implementation. In this respect, OJK may impose administrative sanctions, ranging from written warnings to (ultimately) business licence revocation.
The IRDAI issued the IRDAI (Protection of Policyholders’ Interests) Regulations 2017 (Policyholders’ Regulations) which superseded the IRDAI (Protection of Policyholders’ interest) Regulations 2002 and are the primary regulations on the protection of policyholders in India.
The Policyholders’ Regulations prescribe the practices that are required to be undertaken by the insurers, insurance intermediaries or any other distribution channel at the point of sale of the insurance policy to ensure that the policyholder understands the terms of the policy properly.
In addition to the above, the Policyholders’ Regulations prescribe the claims procedure that is required to be followed by the insurers to ensure expeditious processing of claims. Insurers are required to pay interest at the rate of 2% above the prevalent bank rate, in cases where there is delayed payment of the claim amount or any other amount due under the policy.
Insurers are also required to put in place proper grievance redressal procedures and mechanisms in accordance with the applicable provisions for the resolution of grievances of the policyholders.
Insurance companies are obliged to place, with the OIC, security deposits and insurance reserves as discussed in question 9. This is for the purpose of protecting policyholders, in particular, to ensure that the policyholders are entitled to receive payment of insurance debts from the said security deposits and insurance reserves before other creditors in the event where the insurance company is liquidated and dissolved.
In addition, any insurance company wishing to discontinue its business must obtain prior approval from the OIC. To protect the interests of policyholders, beneficiaries or other interested persons, the OIC may prescribe conditions or procedures for the insurance company to comply with before granting its approval; for instance, a procedure for managing or transferring the obligations under policies, and procedure for notifying insureds, beneficiaries and interested persons to exercise their rights under the law.
Insurance companies are also prohibited, under the LIA and NLIA, from delaying payment of any sum or the return of premiums to a policyholder or a beneficiary without an appropriate reason, or to make such payment or return in bad faith. Any non-compliance to this constitutes a criminal offence and the insurance company would be subject to a fine throughout the period of such non-compliance.
Although there is no insurance guarantee scheme in place, Austria has a mechanism of protecting policyholders of life as well as certain health and accident insurance policies by way of mandatory requirements as to the earmarking of assets.
Policyholder protection is also paramount to the new regulatory regime introduced in the course of the implementation of the Solvency II Directive. It aims at striking a balance between offering a high level of protection for policyholders and at the same time refraining from overburdening insurers with economically detrimental regulatory accounting requirements.
Solvency (cf. Question 9) and minimum capital requirements (cf. Question 10) strengthen the viability of insurance undertakings. As soon as an insurance undertaking’s equity capital falls below the threshold set out in the VAG, the FMA is required to take action. Although not a zero-failure regime, the risk of insurers experiencing serious financial trouble is now reduced considerably.
The Insurance Compensation Fund (the “Fund”) is designed to facilitate payments to eligible policyholders of an Irish or EEA authorised non-life insurer carrying on business in Ireland that have gone into liquidation or administration. The approval of the High Court of Ireland is required for a payment to be made out of the Fund. Where an insurer is in administration, at least 70% of its entire business in the preceding 3 years must relate to Irish situate risk in order to gain access to the Fund. Payments out of the Fund are capped at 65% of the sum due to the policyholder or €825,000 whichever is the less, except in the case of third party motor claims where the Fund will make a payment of 100% of an award. Sums due to a commercial policyholder will not be paid out of the Fund unless the sum is due in respect of a liability to an individual. In addition, policies covering health, dental and life policies are excluded from the Fund.
The Fund is financed through contributions received from non-life insurers writing business in Ireland, who are required to contribute 2% of gross written premium in respect of Irish situate risks to the Fund. The Central Bank is responsible for administering and assessing the financial position of the Fund and determining the appropriate contribution to be paid.